Certain assets are to be included in your gross estate under
Section 2035 of the Internal Revenue Code, if you transferred or gifted those
assets within three years of your death. This will naturally increase your
gross estate value and can increase estate taxes upon death.
This rule wasn’t
intended to deter people from giving gifts or transferring assets to their
loved ones. It was intended to prevent taxpayers from trying to unfairly reduce
or avoid federal estate tax liability once they became aware that their death
is imminent by intentionally (and gratuitously) transferring ownership interest
of certain assets to others.
This rule doesn’t apply to all assets but primarily applies
to certain insurance policies, transfers effective at death, assets in which
the owner retains a life interest and revocable transfers.
Sources: I.R.C. Sections
2035, 2036, 2037, 2038 and 2042.
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